Carbon emissions and firm performance: A matter of horizon, materiality and regional specificities

The relationship between environmental and financial performance has been a source of great debate. While some scholars have exerted that enhanced environmental performance should generate competitive advantages and thus greater profitability, others have argued that the cost burden would not be offset by corporations. In this study, I reexamined the impact of carbon emission performance (CEP) on corporate financial performance (CFP) by studying the moderating effect of CFP horizon, CEP materiality and regional attributes. Using an international sample of firms between 2015 and 2020, the results suggested that (1) short-term CFP was negatively affected by CEP and (2) solely high materiality firms would derive heightened CFP in the long run. While the former finding was exacerbated for high materiality firms and those operating in regions with more stringent regulations, the latter was driven mainly by North American corporations. Thus, materiality appeared to reconcile diverging expectations of scholars regarding the CEP-CFP relationship. The findings reported in this study were robust to firm-year effects as well as endogeneity issues.